IT does not matter

DFNN.COM

In its May 2003 edition, the Harvard Business Review (HBR) published an article by Nick Carr, its senior editor. It has received enormous reactions mostly negative from the tech gurus and giants. The article’s title was intriguing so I went to look for it. The HBR was charging $6 an electronic download (mahal!!). Fortunately there was a free copy of the article at SearchCIO.com.

The article discusses that Information Technology has reached a level of ubiquity that it has become a commodity or a utility like electricity. In fact, the ASP (application service provider) model or in simpler terms, the rental model, will be more the norm than the novelty. The author wanted to challenge the reader that the basis for a sustained competitive advantage – is not ubiquity but scarcity. I agree. An advantage can only be called that if in relative terms you have more weapons or a better way to use it. As an aside, IBM is now throwing several billions of its R&D and marketing dollars at turning software delivery into a service utility.

However, the author failed to point out that IT still does matter for the have-nots. If you do not have the same level of maturity in your IT systems, then you are at a competitive disadvantage. One needs to at least get the minimum IT infrastructure, relative to one’s competitors.

The author also failed to convince me that the job of a CIO (chief information officer) would no longer be important. His term was IT would now be boring. Information technology continues to be a $2-trillion industry worldwide and at its peak represented more than 50 percent of the capital expenditure budget, contrasted against the five percent in 1965. Someone who controls at least 25 percent of your capital budget, I would consider important.

Some Companies That Get IT

In an article in Business Week, not all companies have used technology to change industries like e-Bay and Amazon have done. They have used information technology to continue to reduce their cost structures. JetBlue. Jet Blue is a new startup airline serving the two coasts. It has a virtual call center of about 700 reservation agents, which means reduced occupancy costs. Seventy-two percent of its tickets are booked online, thus reducing its commission costs. It had an operating margin of 19 percent versus Southwest Air’s 12 percent. Southwest has always been known in the industry as a sharp operator. Progressive Insurance. Using digital cameras and Wi-Fi, this company can process accident claims and sometime even write the checks in less than 20 minutes. Connecting its sales network of 30,000 independent agents through its website, the agents can price and file paperlessly (not sure this is a word yet), producing high productivity and reduced costs. With this kind of turnaround in claims processing and agents that are productive, this company’s revenue has tripled to $9.5 billion from $3.4 billion five years ago.

Pal Does Not Get IT

I recently spent a few hours at a PAL (Philippine Airlines) office. I wanted to get a simple Palakbayan tour package. It took me an hour of waiting as there were about 50 customers ahead of me before I was served. It took another 25 minutes for the whole transaction to be completed. Mind you my PAL teller or ticket agent was very courteous and polite and as efficient as she can get. But as my old teacher Dr. Edward Deming used to say "never blame the person, always look at the system" (name-dropping alert!!)

With an hour on my hands, I had a chance to observe the PAL ticket office. There were about 12 to 14 servers at a given time. You entered the queue with a ticket number. It was quite civilized with no one cutting in. The servers had flat screen monitors, which I surmise were connected to the airline reservation system. For 14 servers and 50 customers an hour, service was delivered in 15 minutes or less. Generally a good performance number until you work out that one-half of the 50 customers had already left the queue, bringing the average service time to about 30 minutes. Mind you this is a major improvement even from five years ago.

Having booked online before using Expedia and other online booking systems, I had a booking number and was quite confident I was going to be out of there in five minutes or less once I got to the counter. Apparently, this package tour was a special product that needed special handling. My preconception was that with a booking number all the details were already in the reservation and all the lady had to do was print the vouchers and tickets. Wrong.

From my observation, the reservation system is basically a text-based system with no intelligence other than to know how to print tickets. She had to manually calculate the price of the package with a manual calculator as opposed to running it through an online pro forma sheet.

Ideally with the right software, all she needed to plug in was the reservation code, verify the passenger names and make any changes online. However, any change required that she call the hotel long-distance and verify the costs. In an ideal world, you only need to plug the variables of passenger name, birth date, date and class of travel and product code and all the other business rules should already be in the system.

My Two Cents: Seeing the flat screen monitors of these ticket agents, PAL has probably just upgraded its systems in the last two years. Unfortunately, I think they only upgraded the hardware. You need both hardware and software to get a system to work.

If PAL could improve its service time to five minutes per customer, this means they need two-third less people at the counter. Better service times, happier customers, customers come back, higher revenues. Better service times, less people mean less cost in both salaries and rent.

Dickson Co is CFO (C is for Cheap) for DFnn, Intelligent Wave Philippines and HatchAsia.com. For comments or suggestions, e-mail [email protected].